The 222-page report, devoted to ‘Nonbank Financials, Fintech, and Innovation,’ only fleetingly touches upon cryptocurrencies and distributed ledger technologies (DLT) such as blockchain, noting that these are currently being “explored separately in an interagency effort led by a working group of the Financial Stability Oversight Council.”
Overall, the document indicates a strong impetus on the part of the U.S. government to foster nascent financial technologies and to modernize existing regulatory frameworks in order to remove impediments to their evolution.
The report advocates “more streamlined and tailored oversight,” proposing a set of recommendations that suggest a strong inclination to rationalize overly complex regulations that may stymie growth. These include harmonizing unwieldy state-by-state money transmission legislation, which is notably currently applied to U.S. crypto exchanges.
Noting that interest in crypto assets has “substantially increased” from financial authorities worldwide, the Treasury singles out the dedicated efforts on the part of the G20 to set out appropriate metrics for monitoring the emerging sector.
While it notes that these include managing the “inherent risks” that crypto assets “currently pose for investor protection and anti-money laundering and illicit finance regimes,” the report cites a G20 communique from March that affirms “that technological innovation, including that underlying crypto-assets [sic], has the potential to improve the efficiency and inclusiveness of the financial system.”
The Treasury further acknowledges a range of DLT applications that are being developed by the financial services industry –– although it notes that their benefits are still “highly uncertain –– including:
“Commodities trading and securities settlement […] trusted identity products and services […] [and] the potential for central bank-backed digital currencies, or a tokenized form of a fiat currency that utilizes DLT, [which some assert] could potentially help reduce fees, processing times, and operational risk for market participants.”
The Treasury further advocates the use of regulatory sandboxes and encourages efforts “to create labs, working groups, innovation offices, and other channels for industry participants to engage directly with regulators. A “symbiotic relationship” between regulators and innovators “is needed to support the U.S. economy and maintain global competitiveness.”
This latter notion chimes with concerns voiced recently by the president of the U.S. Commodity Futures Trading Commission (CFTC), who said that the U.S. is “falling behind” other countries in fostering innovation. The CFTC’s president noted in particular that the agency lacked the legally sound procedures that would enable it to directly participate in trials of blockchain proof-of-concepts (PoC), despite that fact that it has created a dedicated LabCFTC for promoting innovation in fintech.